CA Manish Agarwal
The Tax deducted at source (TDS) is covered under chapter XVII of the Income Tax Act, 1961. There are number of sections & subsections under which TDS has to be deducted but the important which are most used by the assessee are given below:
STATEMENT SHOWING RATES AT WHICH TAX IS TO BE DEDUCTED AT SOURCE DURING THE FINANCIAL YEAR 2010-11
|Sl No||Item of Payment / Credit||Particulars||Persons to whom payment is made|
|Individuals and HUF||Firm||Domestic Company|
|1||Salaries (Section 192)||As per schedule of rates enclosed in Annexure ‘A’|
|2||Dividend (Section 194) Applicable from April 1st 2003.||NIL||NIL||NIL|
|3.||Dividend Distribution tax (Section 115-O) (Applicable w.e.f April 1st 2003)||Domestic company distributing dividend after April 1st 2010||16.609||16.609||16.609|
|4||Interest on Securities (Section 193)||Interest payment exceeding Rs.2,500 in relevant FY||10||10||10|
|5||Interest other than interest on Securities (Section 194A)||Interest payment exceeding Rs.5,000 in relevant FY||10||10||10|
|6||Payment to Contractors (Section 194C)||Single payment/credit exceeding Rs.20,000 upto June 30th 2010 and Rs.30,000 from July 31st and/or aggregate payment/credit exceeding Rs.50,000 upto June 30th 2010 and Rs.75,000 from July 1st in the relevant FY|
|A. Advertising contracts||1||2||2|
|D. Transport Contract|
|– PAN furnished||NIL||NIL||NIL|
|– PAN not furnished||20||20||20|
|7||Payment of Commission or brokerage (Section 194H )||Commission payment exceeding Rs.2,500 upto June 30th and Rs.5,000 from July 1st in relevant FY||10||10||10|
|8||Payment of rent (Section 194-I) (Please refer Note 5 for definition of rent)||Rent payment exceeding Rs.1,20,000 upto June 30th and Rs.1,80,000 from July 1st in the relevant FY|
|A. Payment of Rent for lease / hire of Machinery / Plant or Equipment||2||2||2|
|B. Payment of Rent Other than lease / hire of Machinery / Plant/ Equipment (i.e. land, building or furniture)||10||10||10|
|9||Payment of fees for Professional or Technical Services or Royalty (Section 194J)||Payment exceeding Rs.20,000 upto June 30th and Rs.30,000 from July 1st in the relevant FY||10||10||10|
|10||Royalties, technical fees etc to Non – residents (Section 195) (Please refer Note 2 and 4)||Payment Less than Rs. One Crore|
|A. Royalties payable to Foreign Company under Government Approved Agreements on or after June 1st 2005||10.30||10.30||10.30|
|B. On Fees for Technical Services payable to a Foreign Company under Government Approved Agreements on or after June 1st 2005||10.30||10.30||10.30|
|C. On Income by way of Long term Capital gain||20.60||20.60||20.60|
|D. On any other payment to Non- Resident Company||30.90||30.90||41.20|
|Payment More than Rs. One Crore|
|A. Royalties payable to Foreign Company under Government Approved Agreements on or after June 1st 2005||10.30||10.30||10.5575|
|B. On Fees for Technical Services payable to a Foreign Company under Government Approved Agreements on or after June 1st 2005||10.30||10.30||10.5575|
|C. On Income by way of Long term Capital gain||20.60||20.60||21.150|
|D. On any other payment to Non- Resident Company||30.90||30.90||42.23|
|11||PaymentCredit where payee has not furnished its PAN||20||20||20|
1 There is no Surcharge and Education Cess on TDS on non-salary payments made to resident tax payers.
2 The rate of TDS in case of payment to Non residents (U/s 195) & Dividend Distribution Tax are inclusive of surcharge, education cess and higher education cess.
3. The TDS provisions are applicable to all types of assessee except individuals or HUF, whose total sales, gross receipts or turnover from the business or profession does not exceed the limits specified in section 44AB in the previous year.
4. In the case of payments to foreign companies / other non–resident entities, the provisions of Double Taxation Avoidance Agreements between India and the concerned country, if any, are also to be considered for determining rate of deduction of tax at source from a particular payment. The rates specified in DTA agreement would over-ride the above rates of Income tax Act and the provisions which are beneficial to the assessee will be applied.
5 Rent means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement for the use of (either separately or together) any, – (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of the above are owned by the payee.
There are numbers of circulars issued by the CBDT from time to time which clarifies the applicability of TDS on particular transactions. But, however, with the changing world of modern globalization every day a new business is born with some new kind of transaction and hence it is very difficult to judge the applicability of TDS . Here are some latest case laws judgments on TDS which may be useful in your daily routine business.
(a) The Supreme Court held that an employer is under no obligation to collect and examine the supporting evidence to a declaration submitted by an employee to the effect that he has actually utilised the amounts for the specified purposes in deciding the liability to TDS u/s. 192. This was decided by SC in the case of ITI Limited 221 CTR 619. Same was also confirmed in the case of CIT v Larsen & Toubro 181 Taxmann 71.
(b) In the case of Transwork Information Services Ltd. 1 ITR 58 (Trib) it was held that Employer providing composite free Bus pick up and drop facility to employees, not taxable as perquisites. Value of facilities enjoyed by all employees as it is impossible of computation, computation machinery fails hence the employer cannot be treated as assessee in default for failure to deduct tax at source.
(c) In the case of North West Karnataka Road Transport Corporation 22 DTR 237 it was decided that assessee liable to deduct tax at source (TDS) from the salaries paid to its employees, shall not be treated as assessee in default, to the extent of the amount of gratuity which is exempt u/s. 10(10) of the Act, even if gratuity is paid under the provisions of the Payment of Gratuity Act, 1972 or otherwise.
(d) In the case of CIT v Marubeni India (P) Limited 165 Taxmann 467 it was decided that employer had to deduct TDS at average rate from the month in which employee will submit the details of the previous employer in the Form 12B.
(e) Short deduction of tax under section 192 for any reason would justify action of the AO in treating the employer as assessee in default – Drawing & Disbursing Officer v CIT 115 ITD 411.
(f) In the case of B J Service Company Middle East Limited v ACIT 297 ITR 141 it was held that non resident employee was paid salary and tax paid by the company. Held that it was a monetary perquisite requiring salary to be grossed up at multiple stages and it didi not come under the ambit of section 10(10C).
(g) In the case of CIT v Tej Quebecor Printing Limited 281 ITR 170 it was made very clear that TDS to be done at the time of payment of salary.
(h) In the case of Max Muller Bhawan 268 ITR 31 it had been made clear that TDS u/s 192 is applicable to part time employees also. This includes doctors and teachers also.
(a) In the case of Madhusudan Shrikrishna vs. Emkay Exports 188 Taxmann 195 it has been decided that once decree is passed, it is a judgment debtor of the Court, which culminates in to final decree being passed which has to be discharged only on payment of amount due under said decree and therefore judgment debtor is not liable to deduct tax at source on interest component of decree.
(b) Interest u/s 1 94A to be deducted on the interest payable on delay payment of compensation. This was decided in the case of Baldeep Singh v UOI 199 ITR 628. Same was further confirmed in the case of University of Agricultural Sc V Fakiragowda 325 ITR 239 and Sant Ram v Union of India 328 ITR 160.
(c) In case of Supreme court judgment of CIT v Century Building & Industries Limited 293 ITR 194 it was held that any interest payment moved by company is liable to deduct TDS u/s 194A.
(d) In the case of CIT v S K Sundaramier & Sons 240 ITR 740 it was decided that TDS u/s 1 94A is deducted on gross amount and not on any net amount.
(e) Compensation which was measured as interest is not liable for TDS u/s 194A. This was decided in the case of Ghaziabad Development Authority V Dr. N K Gupta 258 ITR 337.
(f) In the case of Viswapriya Financial services and securities Limited v CIT 258 ITR 496 it was held that any monthly return in whatever name is interest.
(g) In case of CIT v United Insurance Co Ltd 325 ITR 231 it was decided that Interest paid by insurance companies to accident victims is subject to TDS.
(h) In case of G.M. Punjab Roadways 178 Taxmann1 12 it was held that Assessee a department of State Government, is liable to deduct TDS on interest paid, along with compensation to victims as per the order of courts / motor accident claims Tribunal.
(i) In case of ITO v Executive Officer cum secretary 6 taxmann.com 68 it was held that assessee makes a provision of interest in its account, provision of section 1 94A applicable.
(a) Tests laid down to determine when contract manufacturing will amount to a contract of sale for section 194C TDS in the case of CIT vs. Glenmark Pharmaceuticals 324 ITR 199.
(b) In case of Sands Advertising Communication (P) Ltd v DCIT ITA No 790 Bang dated 22-1-2010 it had been decided that when an advertising agency reimburse advertising charges to the accredited advertising agency for release of its advertisements in newspaper, provisions of section 1 94C have no role to play.
(c) In case of Entertainment One India Ltd. vs. ITO 39 DTR 26 it was held that Finance agreement of assessee with producer /director of films is not a contract within the meaning of section 1 94C, but only a financing arrangement therefore neither section 194C nor section 194J is applicable for composite contracts for financing film project.
(d) In case of Mythri Transport Corporation vs. ACIT 124 ITD 40 it was held that the payment made to lorry owners at par with payments made towards salaries, rents etc, therefore, payment made to hired vehicles would not be considered as towards sub¬contractor with lorry owners. As the provisions of section 1 94C is not applicable payment made cannot be disallowed by applying the provision of section 40(a)(ia).
(e) The provisions of section 1 94© is well applicable to the work assigned by an event management company. Same was decided in the case of EMC v ITO in case Nos. ITA Nos. 2269 dated 20-1-2010 MUM.
(f) In the case of East India Hotel Ltd V CBDT 179 Taxmann 17 it was held that Misc Services provided by hotels does not constitute work under section 194C.
(g) In case of CIT v Cargo Linkers 179 Taxmann.com 151 no TDS on Clearing & Forwarding agent.
(h) In case of BDA Ltd V ITO 281 ITR 999 it was decided that supply of Printed label is supply not work.
(i) In case of Dy. CIT vs. Laxmi Protein Products P. Ltd 3 ITR 768 (Ahd.)(Trib) it was held that when payment made to laborer through their representative, single payment not exceeding Rs. 20000/-. Tax need not be deducted at source.
(j) In the instant case, assessee hired trucks for a fixed period on payment of hire charges which were utilized in its business of civil construction. There was no agreement for carrying out any work or to transport any goods or passengers from one place to another. Hiring of trucks for the purpose of using them in assessee’s business did not amount to contract for carrying out any work as contemplated in s. 194C. It was held that once the contract was not for carrying out any work, the provisions of s. 194C were not attracted and no disallowance u/s. 40(a)(ia) can be made. (Satish Aggarwal & Co. 27 DTR 34.)
(k) Payments made by assessee society to the truck owners who are its members after receiving the payments from the companies for transporting their goods are not subject to TDS u/s. 194C(2), as there is no sub contracts with the said companies on behalf of its members. Judgment of Ambuja Darla Kashlog Mangu Transport Co± op. Society 2009) 31 DTR 49 (HP).
(l) In the case of The East India Hotels Ltd. & Anr. . 223 CTR 133 it was held that facilities / amenities made available by a Hotel to its customers do not constitute “work” within the meaning of s. 194C and consequently, Circular No 681 dt. 8th March, 1994 to the extent it holds that services made available by a hotel to its customers are covered u/s. 194C must be held to be bad in law and is liable to be quashed.
(m) In the case of Shemaroo Video (P) Ltd. 31 SOT 65, the DVDs etc. were manufactured by entrepreneurs in their own establishment, in accordance with specifications of assessee, (ii) the raw material cost and other ancillary costs were also incurred by them, (iii) excise duty was paid by them and it was only when goods were sold to assessee that property in goods passed over to it, such agreements of the assessee with entrepreneurs could not be termed as works contract within the scope of s. 1 94C and hence no TDS was required.
(n) As the payments were made directly to drivers or truck owners by assessee and through suppliers and further they were charging commission from truckwals and not from the assessee. Further it was found that no payment exceeding Rs. 20000/- was paid to truck owners or drivers, provisions of s. 1 94C can not be made applicable. This was deciced in the case of Bhoruka Roadlines Ltd. 117 ITD 311.
(o) In the case of Dewan Chand 17 DTR 337 Payments made by the assessee to the employees employed by it on daily wage basis cannot be said to be a contractual payment, as such the assessee in such cases was not required to deduct tax from such payments u/s. 1 94C of the Act. Where the asses see had produced confirmation from the parties to whom payments were made, confirming the fact that they have included the amount received from the assessee as their income and paid taxes thereon, the assessee cannot be treated as assessee in default under the provisions of s. 201(1) of the Act for non deduction of tax at source.
(p) Mumbai High court in the case of Mukta Arts Limited 31 SOT 244 decided that Provisions of s. 1 94C would not apply to the film financing arrangements.
(q) In case of Samanwaya 34 SOT 332 it was held that Labour sardars could not be called labour contractors, within the meaning of s. 1 94C(2), hence provisions of s. 40(a)(ia), can not be made applicable.
(r) Supply of outsourced manufactured goods by contract manufacturers constituted outright sale and not contract of work within the scope of s. 1 94C, hence assessee was not liable to deduct tax at source from the purchase price of goods paid by assessee to contract manufacturers, therefore, such payment could not be disallowed by invoking s. 40(a)(ia). It has been decided in the case of Tureg Marketing (P) Ltd. 112 TTJ 343.
(s) In case of Bhagwati Steels 326 ITR 108 it was held that assessee not paid any amount to procurement agencies on account of transportation, interest or storage charges – No liability for deduction of tax u/s 194C.
(t) Since the assessee , a transporter was not liable to get his accounts audited under section 44AB.,in the immediately preceding assessment year , he was not required to deduct tax at source under section 1 94C from the payments could not be disallowed under section 40(a) (ia) on account of non deduction of TDS. This was decided in the case of ITO v Dhirubhai Dajibhai Patel 133 TTJ (Ahd) (UO) 1.
(a) In case of CIT vs Singapore Airlines Limited 319 ITR 29 Airlines selling tickets to travel agents and amounts realized by travel agents in excess of net fare retained by them under passenger sales agency agreement. Same amounts to commission and TDS to be deducted on it. However free tickets does not comes under commission.
(b) In case of Vodafone Essar Cellular Ltd. vs. ACIT 35 DTR 393 it had been decided that margin earned by the assessee company on supply of prepaid SIM cards and recharge coupons etc was in the nature of commission and therefore the assessee service provider is liable to deduct tax at source under section 1 94H. Same was also confirmed in the case of Idea Cellular Limited in case no. ITA Nos. 146 of 2009 dated 19-2-2010 Delhi.
(c) In the case of CIT v Director, Prasar Bharati 325 ITR 205 it was held that Payment made by Doordarshan to advertisement agencies in the form of discount held as commission.
(d) The assessee sold the products billing them at gross amount and trade discount was given at the rate of 50% or 30% or 17.20% as the case may be. The net amount was shown as price payable and sales tax was collected on the said amount. Held that trade discount debited by the assessee in its accounts is not covered u/s 1 94H. Since there was no liability to deduct tax, the disallowance u/s. 40(a)(ia) was deleted. It had been decided in the case of S.D. Pharmacy Pvt. Ltd. Case No. ITA Nos. 948/Coch/2008, A.Y. 2005-06, dt. 5-5- 2009.
(e) In case of Jahangir Biri Factory (P) Ltd. 126 TTJ 567 Payment of Biri binding charges made through Munshis who are part of the labourers can not be considered as commission in terms in Expln (i) to s. 1 94H, therefore the said payment could not be disallowed u/s. 40(a)(ia).
(f) In case of ITL Tours and Travels (P) Limited v ITO 7 taxmann.com 75 it was decided that In order to bring service or transaction within expression ‘ Commission and Brokerage’ u/s 194H element of Agency must be present.
(a) In case of CIT v NIIT Limited 318 ITR 289 the assessee providing computer education and training under franchisee agreement under which fees collected from students by assessee and shared with Franchisee. Same is not a payment of rent and hence no TDS
(b) In case of CIT v Japan Airlines Co Ltd 325 ITR 298 it was held that landing fee & parking fee for aircraft amounts to rent.
(c) In case of Bharat Hotels Limited 28 DTR 337 it was decided that A person who is responsible for paying to a resident any income by way of rent us required to deduct tax at source u/s. 194I at the time of credit of such income to the account of the payee even if it is not the income of the payee previous year in which it is paid; upfront fee paid by assessee to the lessor which is adjustable against 50% of the annual license fee payable to the lessor was rent and therefore assessee was required to deduct tax at source u/s. 194I at the time of the credit of such amount.
(a) In case of CIT Vs Bharati Cellular Limited 210 taxmann 420 it has had been decided that payment for interconnection charges for interconnection provided through port is not liable for TDS u/s 1 94J.
(b) The summary of case of Expeditors International (India) P. Ltd 2 ITR 153 is that Payment of unlinking charges by assessee to parent company not in the nature of fees for technical services hence not liable to deduction of tax at source. Further, Reimbursement of expenditure incurred in respect of Global accounts manger cannot be treated as payment of salary. Similarly reimbursement of common expenses incurred of parent company for benefit of group concerns not liable for deduction of tax at source.
(c) In case of ACIT vs. Indraprastha Medical Corp. Ltd. 128 TTJ 500 it has been decided that where a hospital engaged consulting doctors and provided them with chambers with secretaries assistance and fee collected from out patients and paid to consultants each day after deducting certain amount towards rent and secretarial assistance, it was not a case of payment of professional fees and neither section 192, nor section 194 J was attracted and
the hospital cannot be treated as assessee in default for not deducting tax from such payments.
(d) In the case of Dedicated Health Care Services TPA vs. ACIT 324 ITR 345 it has been decided that though a hospital by itself, being an artificial entity, is not a “medical professional”, yet it provides medical services by engaging the services of doctors and qualified medical professionals. These are services rendered in the course of the carrying on of the medical profession. S. 194J applies to payments made to non-professionals such as hospitals. CBDT Circular on TPA liability is valid except for view on penalty.
(e) In case of CIT V Angel Broking Limited 3 ITR (Trib) 294 it has been decided that when assessee is a member of stock exchange and any payment towards VSAT charges, lease line charges or infrastructure facility etc would not amount to fees for technical service.
(f) In the land mark case of Medi Assist India TPA (P) Limited V DCIT 324 ITR 356 it was held that TPA have to deduct TDS u/s 194J on payment made to hospitals.
(g) In the case of Kotak Securities Ltd. It was decided that Transaction fee paid to stock exchange on the basis of volume of transaction is payment for use facilities provided by stock exchange and not for any services, either technical or managerial, hence, provisions of s. 1 94J are not attracted and no disallowance can be made by invoking s. 40(a)(ia).
(h) Fees for technical services would not include purchase of material by the assessee for the purpose of imparting computer education at their centre, hence, provisions of s. 1 94J and for that purpose s. 201(1) and 201(1A) are not attracted. Taxes having been duly paid by the deductee same can not be recovered from the assessee for failure to deduct tax at source. It had been decided in the case of Frontline Software Services (P) Ltd. 24 DTR 232.
(i) In the Case No. ITA Nos. 1607 to 1609/Mum/2006, Bench ± D, A.Y. 2003-04 to A.Y. 2005-06 BCAJ p. 795, Vol. 40-B, Part 6, March 2009. Of Pacific Internet (India) Pvt. Ltd. It was decided that Payments for bandwidth and network services cannot be said to be Technical services liable to TDS u/s. 1 94J.
(j) In the case of Mahesh Enterprise v ITO it was held that Description of payment as royalty in profit and loss account is not decesive for purpose of section 1 94J
(k) In the Landmark Supreme Court Judgment of CIT v Bharti Cellular Ltd it was held that Department having not adduced any expert evidence to show that any human intervention is involved during the process when calls takes place so as to bring the payments of interconnect charges /access/pot charges made by the assessee to BSNL/MTNL within within the ambit of “fees for technical services” under section 194J , matter is remitted to AO to examine a technical expert and to decide a fresh .Department is not entitled to levy interest under section 201(1A), or impose penalty for non deduction of TDS on the facts and circumstances of the case for the reasons that there is no loss of revenue as tax has been paid by the recipient and the moot question involved in the case is yet to be decided.
(a) In case of Infopark Kerala vs. ACIT 38 DTR 180 it was decided that mere issuance of notification under section 4 of the land Acquisition Act, provision of section 1 94LA was not attracted.
(b) In the case of Karnail Singh v State of Haryana 326 ITR 501 it was held that Deduction of TDS on enhanced compensation of Agricultural Land u/s 194LA
(a) In the case of Ahluwallia and Associates vs. ITO 2 ITR 582 it has been decided that Credit for tax deducted at source must be given to the assessee, though the certificate furnished by the deductor has not shown the date of payment to Central Government.
(b) In case of MTAR Technologies (P) Ltd v Asst CIT 39 SOT 465 it was held that any payment is made to a non shareholder section 194 does not apply.
(c) In case of Smt J Rama v CIT it was held that Law does not stipulate existence of a written contract as a condition precedent for payment of TDS
(d) Once Tax is deducted at source, Amount becomes money due to Central Government and either deductor or deductee cannot appropriate amount so deducted on any ground. This had been decided in the case of ITO (TDS) v India Vision Satellite Communication Limited 7 taxmann.com 65.
(e) In the case of ITO v Hans Road Carriers (P) Limited 7 taxmann.com 39 it was decided that Deduction of Tax at source is not a levy of Tax , It is merely one of the modes of collection of Tax.
CA Manish Kumar Agarwal
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